Hedge-Fund King You’ve Never Heard Of; HSCEI Vol Index launch; Kolanovic update

Dec 4, 2018

Observations & Insight

Options Exchange Marketshare for November 2018
(Click for larger image)


Wednesday Market Reminder
U.S. markets will be closed Wednesday for a national day of mourning. While there will be no trades, the OCC will be open for usual processing. As there are Wednesday expirations, the OCC will use Tuesday’s (today’s) closing prices in those calculations. The exceptions are VIX futures and options which will use the price determined by Thursday’s SOQ. Stay up to date via OCC’s notices page. It’s only fitting that markets are plummeting now on trade truce doubts and yield curve concerns with the VIX up two handles (as of this writing). I guess if things stay active, Wednesday will serve as a breather (and also an unplanned free day of theta decay).


Wilson goes all in against the CFTC and the industry wins
Jim Kharouf – JLN
There are traders who put their careers on the line every day in the markets. And then there’s Don Wilson, who put his career and firm on the line in court with the Commodity Futures Trading Commission, and won.
Yesterday, US District Court Judge Richard Sullivan cleared Don Wilson and his firm DRW in a case brought by the regulator back in 2013 during the contentious and combative tenure of Gary Gensler. The court case itself stretched across two years and three chairmen of the CFTC.

****SD: JLN went all out on DRW vs. CFTC coverage and it’s all worth reading regardless of your trading realm, as it has ramifications for the entirety of U.S. financial regulation environment.


The Curious Case of Our Regulatory Environment (Part II), or Why the Earth Isn’t Flat.
Carl Gilmore for JLN
Two years ago I wrote about the Commodity Futures Trading Commission enforcement action against Don Wilson and his company DRW Investments alleging price manipulation in certain financial instruments. Back then, I (along with many other industry participants) suggested that DRW’s trading activity not only wasn’t manipulative, but that DRW’s discovery of pricing discrepancies in the relevant instruments that resulted from convexity bias, and DRW’s subsequent market activity actually corrected artificial prices rather than created them.

Lead Stories

Jeffrey Talpins Is the Hedge-Fund King You’ve Never Heard Of
Gregory Zuckerman and Rachael Levy – WSJ (SUBSCRIPTION)
Jeffrey Talpins may be the hottest investor on Wall Street.
His firm, Element Capital Management, posted a gain of 26.8% through October, investors say, dwarfing the 1.86% loss suffered by the average hedge fund, according to data-tracker HFR. Element has posted average gains of nearly 21% since launching 13 years ago and hasn’t suffered a down year.
Mr. Talpins is a “macro” trader who uses options to try to capture the upside of—and limit potential losses from—strategies aimed at anticipating global economic shifts.

****SD: Forget 2 and 20, Talpins has upped the ante to 2.5 and 25.

Hang Seng Indexes launches HSCEI Volatility Index
Institutional Asset Manager
Hang Seng Indexes has launched the HSCEI Volatility Index (VHSCEI), which aims to reflect the 30-calendar-day expected volatility of the Hang Seng China Enterprises Index (HSCEI).
The VHSCEI is calculated using a spectrum of prices of the two nearest-term expiration months of HSCEI options currently trading on the derivatives market of Hong Kong Exchanges and Clearing Limited.

****SD: And another one! TASE just announced the launch of a vol index. Now China is in the mix. The U.S. vol space still has Nasdaq’s VolDex offering lingering in the background. If that ever gets options/futures launched on it, the U.S. could suddenly have three tradable volatility indices – Cboe’s VIX, MIAX’s Spikes (already live with options soon to launch) and VolDex. (Not a volatility thing, but those RealDay Options that BOX has wanted to launch for quite some time are also still up in the air.)

What Marko Kolanovic Is Looking at Now
Joanna Ossinger – BloombergQuint
People pay attention to Marko Kolanovic. The global head of macro quantitative and derivatives research at JPMorgan Chase & Co. has gained a following for his forecasts about whether systematic investing approaches such as risk-parity strategies, volatility-targeting funds, and commodity-trading advisers will be buying or selling.

****SD: With the ever busy action in markets, apparently Kolanovic has no time to practice his bassoon.

Investors bet on rate volatility as no-deal Brexit fears mount; Demand for derivatives contracts covering the Brexit deadline hit a record
Philip Stafford – Financial Times (SUBSCRIPTION)
Growing concern over how a no-deal Brexit could unbalance the British economy has sparked a record-breaking surge in demand for derivatives contracts betting that the UK faces volatility in interest rates in coming months.

Nasdaq moves into ‘alternative data’ with Quandl acquisition; Exchange group diversifies as price of traditional trading feeds comes under fire
Robin Wigglesworth – Financial Times (SUBSCRIPTION)
Nasdaq has acquired one of the biggest “alternative data” platforms, highlighting the swelling investor interest in non-traditional information from satellite images, web-scraping and credit card purchases and potentially presaging a burst of consolidation in the fragmented industry.

****SD: Wow. This is a big one and will only add to the debate about exchanges and their control over data. It is fitting that today Tabb Forum has this piece – Embracing Alternative Data: A Three-Stage Approach for Portfolio Managers from Geospatial Insight See the press release here.

Investors’ New Lifeline: The Trump Put
Justin Lahart – WSJ (SUBSCRIPTION)
Never mind the Fed put. It is the Trump put that investors need to pay attention to now.
The Fed put is a trade on the idea that the Federal Reserve will step in to assist whenever things get dicey in the stock market, offering the sort of insurance that a put in the options market does. Originally the “Greenspan put,” it is an idea that originated early last decade from the Fed’s tendency, under then-Chairman Alan Greenspan, to cut rates or hold off in response to market turmoil.

CME economist predicts volatility eruption in 2020
Louisa Chender – Global Investor Group (SUBSCRIPTION)
Options markets appear to follow a cycle related to US monetary policy, Erik Norland says

****SD: All right guys, set your calendars to check the numbers in 2020 and email Norland if he’s wrong.

Exchanges and Clearing

CME Group Averaged 21.7 Million Contracts Per Day in November 2018, Up 21% from November 2017
CME Group
CME Group, the world’s leading and most diverse derivatives marketplace, reached average daily volume (ADV) of 21.7 million contracts per day in November 2018, up 21 percent from November 2017. Open interest at the end of November was 128 million contracts, up 4 percent from November 2017 and up 19 percent from year-end 2017.

Strong November for Eurex Exchange: 12 percent increase in total turnover
Eurex Exchange
In November, Eurex, Europe’s largest derivatives exchange and part of Deutsche Börse Group, has again seen very strong demand for its products. A total of 149.5 million contracts were traded in November. This is 12 percent more than in last November (133.3 million).

ABN Amro to clear Eurex FX futures and options; ABN Amro Clearing to provide support for classic FX derivatives contracts with monthly and quarterly expiries, as well as rolling spot futures.
Hayley McDowell – The Trade
Dutch investment bank ABN Amro has started clearing Eurex foreign exchange (FX) futures and options for its clients.

Regulation & Enforcement

EU takes new step on derivative clearing, despite UK, U.S. concerns
European Union governments backed on Monday a proposal that could force systemic foreign clearing houses with operations in the EU to relocate to the bloc if they want to continue servicing their EU clients, a statement said.


Rally Time or Time Out? Wall Street Asks What’s Next for Stocks
Luke Kawa – BloombergQuint
Analysts debate if deal can lead to long-term relief; Emerging-market assets stand to make up ground on U.S. shares
The easing of U.S.-China trade tensions might not be as unabashedly bullish as investors had expected.

Traders Scramble to Bet on Crude’s Bottom
Bernie Schaeffer – Schaeffer’s Investment Research
The fourth-quarter sell-off in oil prices has been fairly massive in magnitude, with the West Texas crude-tracking United States Oil Fund (USO) down about 34% from its Oct. 3 intraday peak of $16.24. The commodity fund’s collapse occurred with such blinding speed that its 50-day and 200-day moving averages are only now, as of Friday’s close, on the verge of completing a “death cross” in confirmation of this bearish momentum. Meanwhile, its 14-day Relative Strength Index (RSI) spent the entire month of November lodged below the 30 level that denotes “oversold” territory — its longest such consecutive stretch in years.

Global Market Forecast: Goldman Sees Another Weak Year For Markets After A Lousy 2018
Christopher Anstey – BloombergQuint
Slowing economic growth, shrinking central bank balance sheets and continued bouts of volatility will help make 2019 another poor year for risk-adjusted investment returns, with few obvious havens, according to Goldman Sachs Group Inc.

Elliott Wave theory suggests an unsettling event will occur in the stock market
Avi Gilburt – MarketWatch
I often read articles, along with the comments, to gauge the stock market’s sentiment from an anecdotal perspective. I recently noticed a quote by investor Sir John Templeton:
“For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers, and many individual investors too, made money in stocks, especially those of smaller companies.”


Government found in contempt of parliament over Brexit legal advice (LIVE UPDATES)
The Guardian
Rolling coverage of the day’s politics, as Theresa May opens five-day debate on Brexit deal

Interactive Brokers Group Reports Brokerage Metrics and Other Financial Information for November 2018, includes Reg.-NMS Execution Statistics
Business Wire
Interactive Brokers Group, Inc. (IEX:IBKR) an automated global electronic broker, today reported its Electronic Brokerage monthly performance metrics for November.

****SD: Average commission per options order was $5.33 with order size of 7.9 contracts.

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